Here’s a guest post from my Loyola tax colleague, Ellen Aprill:

The New York Times reports that the Democratic Congressional Campaign Committee has filed a complaint with the IRS regarding the American for Prosperity Foundation (“APF”), a section 501(c)(3) organization. The complaint alleges both that APF is an action organization, that is, primarily a lobbying or advocacy organization, not eligible for exemption under section 501(c)(3) and that it is engaged in prohibited intervention in a political campaign through advertisements that support advertisements run by its sister organization, Americans for Prosperity, a section 501(c)(4) organizations.
As a section 501(c)(3) organization, Americans for Prosperity Foundation, can engage only in limited lobbying and is prohibited from any political campaign intervention. Contributions to it are tax-deductible. On its 2008 Form 990 Annual Information Return to the IRS, it described its mission as to “educate citizen leaders on ensuring economic freedom and opportunity.” As a section 501(c)(4) organization, Americans for Prosperity can lobby without limit and can engage in political campaign intervention so long as such activity does not become its primary purpose. (How to define primary purpose is a subject of much debate; moreover, expenses for political campaign intervention subject the organization to tax under section 527(f).)) Contributions to Americans for Prosperity are not tax-deductible. Paired 501(c)(3) an(c)(4) organizations are common. The ACLU is paired with the ACLU Foundation; the Sierra Club with the Sierra Club Foundation.
The complaint states that the ads run by the APF are designed to support ads run by American for Prosperity. The ads run by American for Prosperity, according to the complaint “express disapproval of political candidates in hotly contest elections less than three months before election Day.” The complaint provides the text of the ads — they name candidates and describe their positions. The complaint states the APF ads ran two weeks after the Americans for Prosperity ads ceased to air in the same media markets. The APF ads criticize the “pork barrel stimulus” and “wasteful spending.” They do not mention any names of candidates. According to the complaint, there is “no non-political rationale for the APF advertisements” and “facts and circumstances indicate that these APF advertisements constitute political campaign intervention.”
The IRS has no bright line test for what constitute political campaign intervention or a statement of a public policy position. In each case, the question is a matter of facts and circumstances. In the most recent official guidance, Revenue Ruling 2007-41, the IRs listed the following key factors as to whether a communication would be considered campaign intervention:
* whether the statement identifies one or more candidates for a given public office,
* whether the statement expresses approval or disapproval for one or more candidates’ positions and/or actions,
* whether the statement is delivered close in time to the election,
* whether the statement makes reference to voting or an election,
* whether the issue addressed in the communication has been raised as an issue distinguishing candidates for a given office,
* whether the communication is part of an ongoing series of communications by the organization on the same issue that are made independent of the timing of any election, and
* whether the timing of the communication and identification of the candidate are related to a non-electoral event such as a scheduled vote on specific legislation by an officeholder who also happens to be a candidate for public office.
The ruling continues, “A communication is particularly at risk of political campaign intervention when it makes reference to candidates or voting in a specific upcoming election. Nevertheless, the communication must still be considered in context before arriving at any conclusions.”
The complaint states that Election Day is less than months away and that there is no scheduled vote on specific legislation that is at issue. However, it is not clear that three months is close in time to the election, other negative factors are missing, and the communications appear to be integral to APF’s mission independent of the election. Thus, as with any facts and circumstances test, the balance is not clear.
The complaint, however, also makes another quite different claim. It argues that the financial disclosures on its 2008 Form 990 and the ads of APF asking its listeners to act to stop wasteful spending by the government show that it is engaged primarily in grassroots lobbying. If the IRS were to agree with this conclusion, APF would not be eligible for status as a 501(c)(3) organization. On its 2008 Form 990, it answered “no” to the question as to whether it engaged in any lobbying activities and described its activities as educational. The ads it has been running send its listeners say that wasteful spending must stop and send listeners to its website “to make your voice heard.” The website states that the APF provides educational programs and analyses that it supports “[c]utting taxes and government spending in order to halt the encroachment of government in the economic lives of citizens by fighting proposes tax increases and point out evidence of waste fraud and abuse” and “Tax and Expenditure Limitations to promote fiscal responsibility.” It does not, however, state anywhere that it supports such positions through lobbying or urging others to lobby. It states as well that the heart and soul of the organization is its “citizen activists.” It speaks explicitly about regulatory reform and the judiciary, but not about the legislative branch. Once again, the issue is not one of easy resolution.
The administrative complaint that the Democratic Congressional Campaign filed is simply a request for the IRS to investigate the allegations. The IRS has no obligation to do so or make any response to the Democratic Congressional Campaign.